The negative impact of low oil prices on fixed investment in Canada will persist in 2016 to a greater extent than we had previously projected, prompting us to revise down our real GDP growth forecast for this year.
Expansionary fiscal measures outlined in the 2016 Budget on March 22 will see a significant widening of Canada's federal government budget deficit over the next two years. However, even though we see government debt climbing, it will remain very low by G7 standards, with only limited fallout for future borrowing costs.
Canada's governing Liberal party will continue to enjoy strong popular support as it proceeds with its socially-minded reform agenda at a time when the economy will continue recover gradually.
Key Forecast Changes
The release of the Liberal government's 2016 budget has seen us revise our fiscal projections. We now see the federal budget deficit widening from 0.1% of GDP in 2015 to 1.3% of GDP in 2016 and peak at 1.4% of GDP in 2017. This compares with a peak deficit of 0.9% of GDP in 2018, which we had previously been forecasting.
High household leverage and continued housing price growth could lead to a crash in the real estate sector and trigger a recession.
Continued downside in global oil prices will take a toll on Canada's economy and could depress business confidence.
|e/f=BMI estimates/forecasts. Source: National Sources/BMI|
|Real GDP growth, % y-o-y||2.5||1.2||1.4||2.0|
|Nominal GDP, USDbn||1,761.5||1,530.4||1,495.3||1,625.1|
|Consumer price inflation, % y-o-y, eop||1.5||1.6||2.0||2.2|
|Exchange rate CAD/USD, eop||1.16||1.38||1.32||1.30|
|Budget balance, % of GDP||0.1||-0.2||-1.4||-1.4|
|Current account balance, % of GDP||-2.3||-3.4||-3.0||-2.6|
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